great crash

• Several factors occurred to bring about the eventual stock market crash

  1928-29
• In 1928

  1. The central Federal Reserve Bank increased interest rates on borrowed money

  2. The central Federal Reserve Bank cut the money supply to the country as a whole
• Those who had borrowed money to buy shares had to pay more interest on those loans and therefore became reluctant to borrow and invest
• The head of the Federal Reserve Bank fell seriously ill, and the bank was therefore unable to provide strong leadership when a crisis struck
• The Federal Reserve Bank had limited powers to manage the crisis
• There was a growing awareness that depression was setting into the United States

  This led to a loss of confidence in the markets and fewer people were prepared to invest their money in industry
• Large numbers of banks, insurance companies and businesses became heavily involved in speculating on the stock market to make a large amount of money in a short time for their managers and shareholders
• None of these institutions were effectively controlled, and the Federal Reserve Bank had only limited regulatory powers
• Banks were speculating on the stock market with money their customers had deposited as savings
• Most US banks were small and served only their local communities, had few reserves and were deeply involved in the speculation that led to the Great Crash when they collapsed
• If the bank lost the money through unwise speculation, then it would simply go out of business and customers would lose all their money
• Confidence collapsed on Wall Street and shares dropped in value by as much as 40% in a single day


  October 1929
• There had been a sudden fall in stock prices, but the market recovered quickly


  Late September
• Over 6 million shares were traded and $4 billion was suddenly wiped off the value of stocks


  23 October
• 13 million shares were sold and $9 billion lost


  24 October ('Black Friday')
• Over 16 million shares were sold, and over one-third of the value of all shares had dropped in a month


  29 October
• Thousands of individuals were ruined, and many small banks and insurance companies went bankrupt
• The customers who had trusted the banks with their savings just lost all their money
• The stock market recovered slowly over the next two years
• Some argued that what happened was necessary to end unwise speculation by banks and businesses
• It was a severe blow to confidence and didn't encourage new investment
• Less than 3% of US citizens owned stocks and shares themselves, but many hundreds of thousands lost their life savings when the banks and insurance companies that had been speculating with their money collapsed
• As a result of the stock market collapse

  What had been a slowly developing economic decline then accelerated into a major economic and social catastrophe